If you are reading this article, it’s likely that you are about to dive into the journey of buying a home. How exciting! One of the early steps of the home buying process is getting a preapproval from a lender.
What is a Pre-approval?
A pre-approval is the figure that lenders will give you, indicating how much money they will potentially loan to you. Your mortgage broker can help you find the right lender as they have a plethora of banks and lenders at their fingertips. They are experts at pairing home buyers with the right lender. The pre-approval figure will help you determine how much you can afford, and it will also help you when viewing homes. It means you can view homes that you can afford, and avoid falling in love with a property that is out of your budget.
In order to receive a pre-approval, you’ll need to meet particular lending requirements.
What Do Lenders Look For?
When applying for a loan, the lenders will want to know that you can comfortably afford the mortgage repayments and the cost of the deposit. Here are some of the things the lender will need to see.
1. Proof of Identity
This may be an obvious one. But you need to prove who you are. You’ll need to present a valid passport or driver’s license. You’ll also need to show a proof of address such as a utility bill or bank statement.
2. Proof of Deposit
Can you pay for the deposit? Most deposits in New Zealand are 20%. Your mortgage broker will be able to confirm how much of a deposit you will need. Some first time buyers may qualify for a deposit of just 5%. As a first home buyer, you may also be eligible for a first home KiwiSaver withdrawal, which can cover a portion of your deposit. There are many other ways you can save for a deposit. Reduce your expenses such as your rent, broadband, power, mobile and other finances. Be sure you are using a savings account that has a high interest rate so that your money can work for you. Take up some other jobs or a side hustle to earn some extra cash.
3. Proof of Income
You’ll need to prove you have a consistent and reliable source of income so that you can afford to pay your mortgage back over time. Lenders will typically ask for bank statements, payslips, and an employment contact. If you are self-employed, you’ll need to provide financial statements with the help of an accountant.
4. Your Expenses
Can you afford to pay your repayments on time, and still live comfortably with your other expenses? Your lender will want to see your spending habits. So, you'll likely need to present 90 days of bank statements. In the lead up to presenting this information, be sure to make sure your statements are in the best shape possible. This is a good time to reduce your expenses and reduce your unnecessary spending. Can you limit your takeaways and online shopping? While it may be tempting to jump on the latest trends, and impulse buy, be strict with what you spend your money on while you are in the lead up to applying for a pre-approval. It’ll be worth the hard work in the end. You got this!
Need Help? Our Experts Offer Free Advice
Here at Money Compare, we have experts on hand to help navigate you through the home buying process. Simply request a free back by clicking the button below and a fully qualified advisor will be in touch. They can help with any home loan or mortgage questions.
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